In his final press release of 2012, Freddie Mac chief economist Frank Nothaft pulled into stark focus just how good that year had been for home loan borrowers. He observed:
“Mortgage rates ended this year near record lows. The 30-year fixed-rate mortgage averaged 3.66 percent for 2012, the lowest annual average in at least 65 years. Rates on 30-year fixed mortgages were nearly 0.6 percentage points below that of the beginning of the year, which translates into an interest payment savings of nearly $98,600 over the life of a $200,000 loan.”
Mortgage rates set to rise?
That last sentence was especially startling: It means that, if you haven’t refinanced in the last year, you could end up throwing away close to $100,000 in excess interest payments between now and when your mortgage is finally paid off. Exactly how much you could save obviously depends on the amount of your home loan, and how long it still has to run.
But suppose mortgage rates fall even further, you might say. You don’t want to pay closing costs for a refinance now if you could make even bigger savings in 2013.
Good point — especially as nobody knows what’s going to happen to mortgage rates in the future. But some people should be able to make better guesses than others. So what do the experts at the Mortgage Bankers Association (MBA) and Fannie Mae think could happen?
The smart money? Refinance now.
In their December 2012 forecasts, both teams believed those mortgage rates would inch up during the coming year. The economists at the MBA expect those for 30-year fixed-rate mortgages to hold steady during the first quarter, but then to creep up, eventually to an average 4.4 percent in the October - December period. That’s up from a 3.7 percent average for 2012.
Both teams also agree that the “median price of total existing homes” (average house prices, excluding new builds) are likely to edge up, although there could be some volatility that might see prices drop below — as well as rise above — current levels. Fannie Mae’s people believe that those house prices will average $176,000 in 2013, up from $173,000 last year. Using different data, the MBA experts anticipate house prices to average $186,900 this year (and $193,600 in 2014), up from a 2012 average of $178,600.
If these experts are correct — and that’s a big “if” — then you might think it sensible to go ahead and refinance or apply for a new home loan now, rather than to wait longer. There’s no point in hanging around unless you, unlike the experts, believe mortgage rates and/or house prices are going to fall further.